Family Income Benefit Life Insurance UK: How It Works and Who Should Consider It
- Emma Patel - Personal Finance & Budgeting Specialist
- Apr 1
- 6 min read
If you’re thinking about life insurance, you might be familiar with lump-sum policies. But what if your family would struggle more with monthly budgeting than with managing a large payout? That’s where Family Income Benefit (FIB) comes in.
Unlike traditional life insurance policies, which pay a one-off lump sum when you die, family income benefit provides your loved ones with regular tax-free monthly payments — acting like a salary replacement to support your dependants. It can be a more practical and manageable option, especially for young families.
In this guide, we’ll explain how family income benefit works in the UK, what it covers, who it’s best for, how to compare providers, and the common pros and cons. We'll also highlight one key use case most people overlook, and how this type of cover compares to other forms of life insurance.
What Is Family Income Benefit?
Family income benefit is a type of term life insurance that pays out a regular income (e.g. monthly or annually) to your beneficiaries if you die during the term of the policy.
Rather than paying out a lump sum, it offers ongoing financial support for the remainder of the term — usually until your children are grown or your mortgage is paid off.
Key Features:
Regular, tax-free income paid to your family if you die
Payments continue until the end of the policy term
Typically lasts 10–30 years
Affordable premiums due to reducing payout potential over time
Read our guide on: Types of Life Insurance in the UK
How Does Family Income Benefit Work?
Let’s say you take out a 20-year family income benefit policy that would pay your family £2,000 per month if you pass away. If you die in year 5, the insurer pays your family £2,000/month for the next 15 years (the remaining term). If you die in year 18, your family receives the payments for just 2 years.
Step-by-Step:
Choose your term length (e.g. 20 or 25 years)
Set the monthly income your family would need
Pay fixed monthly premiums
If you die during the term, your family receives monthly income until the policy ends
If you survive the term, no payout is made
Note: The longer you live into the policy, the smaller the potential overall payout — which helps keep premiums low.
Who Is Family Income Benefit Best For?
Family income benefit suits people who want to provide manageable monthly support rather than a lump sum that could be mismanaged or insufficient over time.
It’s ideal for:
Parents with young children
Main earners in households with dependants
Families with regular outgoings (rent, childcare, school fees)
Those concerned about budgeting and financial discipline
Read our guide on: Life Insurance for Parents – Do You Need It?
What Does Family Income Benefit Cover?
It typically covers:
Death from natural causes
Death due to illness or accident, as long as it happens during the term
Optional terminal illness benefit — early payout if diagnosed with a terminal condition
Option to include critical illness cover (pays monthly income on diagnosis of a serious illness)
Pros and Cons of Family Income Benefit
Pros:
Budget-friendly payouts – mimics a salary
Lower premiums than level term cover
Easier for families to manage than a large lump sum
Tax-free income
Can be written in trust to avoid inheritance tax and probate
Cons:
No lump sum – not suitable if a large upfront payment is needed
Payout reduces over time (as fewer years remain on the term)
No payout if you outlive the policy
Some policies may not keep up with inflation unless linked
Unique Insight: A Solution for Non-Working Parents
Most people assume only the main earner needs life insurance — but if you’re a stay-at-home parent, the cost of replacing your role (childcare, school runs, home management) could be significant.
Family income benefit is often overlooked here, but it’s a great option to provide your partner with extra monthly help if you're no longer around. It’s typically cheaper and provides consistent support during your children’s key years.
Family Income Benefit vs Other Life Insurance
Understanding how FIB compares with more common life insurance types is key to choosing the right policy.
Family Income Benefit:
Pays monthly income
Best for families needing ongoing support
Lower premiums
No large upfront payout
Level Term Life Insurance:
Pays a lump sum if you die during the term
Good for covering a mortgage or leaving a legacy
Higher potential payout
Read our guide on: Level Term Life Insurance – Explained
Whole of Life Insurance:
Covers you for life, not just a fixed term
Guarantees a payout (but with higher premiums)
Better for funeral costs and estate planning
Read our guide on: Whole of Life Insurance – What It Covers
What to Consider Before Buying Family Income Benefit
Monthly income amount – How much would your family need to replace your earnings or contributions?
Policy term – Typically aligned with when your children become financially independent
Joint or single cover – Joint policies cover two people but usually only pay out once
Add-ons – Consider adding critical illness or waiver of premium cover
Inflation protection – Some policies allow you to link the payout to inflation to maintain its value
Writing in trust – Speeds up the payout and helps avoid inheritance tax. Learn more at GOV.UK – Inheritance Tax
Real-World Example
Scenario:
Mark and Louise have two children under 5. Mark earns £45,000 and Louise is a full-time parent. They take out a £1,800/month family income benefit policy for 20 years.
If Mark passes away in year 8, the policy pays out £1,800/month for the remaining 12 years — totalling £259,200. This helps cover bills, childcare, and day-to-day expenses while Louise raises the children.
It gives structure and predictability — compared to a lump sum that could run out too soon.
How Much Does Family Income Benefit Cost?
Premiums depend on:
Age and health at time of application
Smoker status
Length of the term
Monthly income chosen
Whether you add extras like critical illness cover
In general, it’s cheaper than level term insurance because the potential payout reduces the longer you live.
To get the best deal:
Compare quotes from multiple FCA-regulated insurers
Consider inflation-linked cover
Use a broker if you have health conditions or want tailored advice
Verify all providers on the FCA Register
FAQs: Family Income Benefit UK
Q: What happens if I die after the policy ends?
No payout is made. The policy only covers you during the specified term.
Q: Is family income benefit tax-free?
Yes — the income paid to your beneficiaries is usually tax-free.
Q: Can I change the income amount later?
Not usually — you need to choose the amount when setting up the policy. You may be able to cancel and start a new one.
Q: What if I want both a lump sum and monthly income?
You could take out both family income benefit and a separate level term policy, depending on your budget.
Q: Can it be written in trust?
Yes, and doing so can help avoid inheritance tax and probate delays.
Q: Is critical illness cover included?
Not by default. It can often be added as an optional extra for an additional premium.
Final Thoughts: Is Family Income Benefit Right for You?
Family income benefit life insurance offers a simple, structured way to protect your family’s financial wellbeing if you pass away during the policy term. Instead of worrying about managing a large lump sum, your loved ones receive regular payments — giving them stability and peace of mind.
It’s especially well-suited to:
Families with young children
Households with one main earner
Those who prefer a regular income over a one-off payout
People looking for affordable cover with real-world practicality
Before choosing, assess your family’s needs, budget, and financial commitments. You may even combine it with other types of life insurance for broader protection.
Done right, family income benefit can bridge the financial gap left behind — and give your family the time, space, and support they’ll need most.
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